The last eighteen months could have been cataclysmic for the living sector. With the pandemic having caused construction site closures, supply chain issues, price increases of materials, economic nervousness and, more recently, labour shortages from the ‘pingdemic’, the outlook at times has looked pretty bleak for the sector.

But performance since mid-2020 has been nothing short of remarkable.

Government interventions have certainly helped, but the market has proved itself creative and resilient in the face of significant adversity, paving the way for a resurgence in buyer confidence and corporate investment.

But what now? Will the market continue to perform or are there pitfalls of which to be wary?

Catherine Williams, Head of Living Sector at national law firm Shoosmiths has provided this commentary looking at trends in the market and the factors which may influence future change.

SDLT here to stay

Putting aside the debatable benefits of SDLT and the argument that abolition would result in a more free-flowing market, it is difficult to say that the SDLT holiday didn’t mobilise buyers and sellers and provide the sector with a welcome economic boost. Aan additional 140,000 transactions were estimated to have been generated by the holiday alone, with the average additional expenditure on each as high as £16,000, resulting in between £1.8-£2.7 billion for the wider economy.

Whilst an increase in house prices has been a partial consequence, the “experiment” has arguably strengthened the case to scrap the tax for good, with socio-economic benefits of downsizing, social mobility, wellbeing and levelling up a conspicuous side effect. That said, any change would likely need to be tackled as part of a much broader tax reform exercise and, with SDLT bringing £12 billion into the Treasury each year and Rishi Sunak so far resisting the clamour, it’s fair to say that SDLT reform in the short term at least looks unlikely.

So, with SDLT to go back to normal from October once the tapering off period ends, should we expect to see a hit on transactions? And heading into winter with the threat of Covid enduring, the next six months will continue to present challenges for the housebuilding sector. However, as we’ve seen before, the underlying strength of the sector and the creativity of those who work within it suggests a more positive outlook for 2022.

A perfect storm for the supply chain

We have seen huge disruption to the construction industry as a result of supply shortages, as well as price increases, particularly in products sourced from Europe and the Far East. There are of course some obvious reasons for this around Brexit and Covid, bringing about a perfect storm of factors that has led to the low supply, high demand and the high costs that we are seeing.

Add in increasingly congested shipping routes, a shortage of HGV/LGV drivers and the enduring effects of the pandemic on the global shipping industry, and it’s fair to say that the industry is having a challenging time.

These difficult market conditions are expected to remain until at least the end of the year and, with strong demand for home improvements and new housing, the uncertainty of supply will likely result in further price increases. The larger housebuilders may well be able to accommodate these impacts into their new schemes, but smaller developers more reliant on cash flow and tied into pre-existing and inflexible contract terms may well struggle.

Careful scrutiny of the volatility clauses in supply contracts and the levels of risk that are attached in terms of time and cost obligations will be more important than ever. Going forward, more flexibility may well be needed throughout the supply chain to ensure these issues doesn’t escalate into an even bigger systemic problem.

BTR on the up

With plenty of talk of high yield, low-risk and increasing local authority support, BTR has been attracting investor interest for a few years now. And rather than bursting BTR’s balloon, the pandemic has served only to enhance its allure, with CBRE data showing £1.5bn worth of deals were transacted in H1 2021 alone, up 30% on H1 2020, itself a record-breaking year with £3.5bn of BTR investment deals completed in the full 12 months.

With over 36,000 BTR units currently in the pipeline (according to Ascend Properties), the market certainly doesn’t look to be slowing down. And what is more, with two-thirds of proposed schemes located outside of London, the regions are now beginning to come to the party, recognising BTR as a way to increase housing choice for their communities and boost their local economies.

Which begs the question, are we in the midst of a societal shift in mindset when it comes to home ownership?

With the cost of buying a house increasingly prohibitive and the lifestyle benefits offered by BTR accommodation (resident lounges, co-working spaces, gyms, cinemas, roof gardens etc), you can understand the appeal, and not just for millennials. Certainly, the amount of capital being deployed across the sector suggests that buying a home is not necessarily the priority for a growing number of individuals that it was a generation ago.

Throw in the emergence of BTR single-family housing and the question is perhaps less about a societal shift in mindset and actually more about whether we have reached a point at which home ownership is now so out of reach for twentysomethings as to be unachievable. Or it may be that demand always existed but, until the boom in BTR, was just underserved. Regardless, with all metrics pointing upwards, the future of BTR is hot.

The urbanisation of later living

“Specialist retirement properties create more local economic value and more local jobs than any other type of residential housing.” As a statement endorsing the importance of the grey pound to our future town and city centres, this one from Homes for Later Living’s ‘Silver Saviours for the High Street’ report takes some beating.

Yes, we have a moral obligation to look after the elderly and provide them with high quality living accommodation and a sense of community, but it is becoming increasingly clear that doing so also makes sound financial sense. With the over-65s expected to account for almost 25% of the UK population by 2039 and perennial issues around high demand and low supply, the later living sector is proving itself an attractive asset class for investors.

However, rather than locating retirement homes in leafy suburban or rural areas, as has largely been the case for decades, there is a growing argument that we need to bring our retirees more into our central town and city sites, close to shops, restaurants and amenities, as well as transport hubs. Our town and city economies would certainly benefit from this demographic’s extra spending ability.

With a record number of retail units having closed in the last year and with the switch to hybrid home/office working likely to reduce footfall in our centres, a blend of residential will be necessary to ensure our urban areas avoid neglect and ruin.

In supporting the urbanisation of this sector, not only will we be able to address the lack of available retirement housing, we will be able to bring about a more effective use of brownfield sites, a reduction in greenfield development, the worthwhile repurposing of empty retail units and a new target market for local retail and leisure businesses.

A true virtuous circle.